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We are constantly improving our sustainable financing. More research and cooperation are needed on the road to a green economy. And we also work hard to achieve this.
Sustainable finance: the challenges
Sustainable finance is strongly on the rise. But it is still in its infancy. There remain many challenges ahead. For example, we lack reliable data, international standards and measurement methods to determine a sustainability profile. This means that we often have to make assumptions about the extent of sustainability or that we unintentionally apply double standards. What one institution calls sustainable can therefore be rejected as unsustainable by another. There are also many obstacles to sustainable financing. These and other challenges call for more research and cooperation.
Ambitions in the Climate Agreement
In the Paris Climate Agreement, it was agreed to limit global warming to 1.5 ⁰C compared to pre-industrial levels. The EU’s ambition is to be climate neutral by 2050 and to achieve a carbon (CO2) reduction of at least 55% in 2030 compared to 1990. The Dutch government is aiming for a 49% carbon reduction in 2030. We are far away from achieving that aim with the current efforts. So there is every reason to invest much more in achieving the climate targets.
Climate investment - some obstacles
A recent DNB study shows that there are several obstacles to climate investment. For example, the return on investment compared to the risks is poor, because CO2 emissions are underpriced and government policy is uncertain. As a result, emission-intensive companies do not receive sufficient sustainability incentives when attracting funding.
Stimulating climate investment
We advocate higher taxes on CO2 and the phasing-out of fossil subsidies. Furthermore, policies are needed to drive climate investment and provide sustainability incentives for businesses. Possibilities include encouraging equity financing and financial innovation. This will allow better matching of supply and demand for innovative and risky climate investment. Read more about our recommendations to stimulate sustainable financing.
Principles for Responsible Investment
In 2019, DNB was the first central bank to sign the Principles for Responsible Investment (PRI). We thus clearly show that we take sustainability seriously and want to be transparent about how we put this into practice. We apply the six investment principles of the PRI and also take into account the ESG criteria. And we commit to comprehensive accountability and reporting in accordance with the PRI requirements. All this helps us to further develop sustainable investment. For example, we have improved our ESG framework with feedback from the PRI. We have also charted the CO2 footprint of our investments in our Annual Report. And we published our first report on financial climate-related risks and opportunities in accordance with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).
International standards
One of the obstacles to sustainable financing is the lack of internationally comparable data. DNB supports the IFRS Foundation’s plans to set up a Sustainability Standards Board. IFRS is ideally suited to set global sustainability reporting standards for the business sector. It is important that annual reports also contain reliable and comparable sustainability information in the near future. This gives all stakeholders the data they need to assess the risks of climate change and biodiversity loss. And it will help them contribute to achieving the Paris climate targets.
Cooperation
To meet all these challenges and learn from each other, we work to bring parties together. In 2016, we established the Sustainable Finance Platform, where the Dutch financial sector, supervisors and ministries work together on sustainability initiatives. DNB is also one of the pioneers of the Network for Greening the Financial System (NGFS), which aims to green the financial system and strengthen the efforts of the financial sector in achieving the Paris Climate Agreement targets. Read the report and progress report on the steps taken by central banks in making their own investment portfolios more sustainable.
Towards a green economy
DNB is committed to promoting financial stability and sustainable prosperity. That is our mission. Climate change threatens our prosperity and stability. Therefore, it is necessary to take a more sustainable approach. We are working hard on this in many areas. In our supervision, we ask financial institutions to take on board the financial risks of climate change. We also want to invest more sustainably. And we make new euro notes using sustainable cotton.
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I am an expert in sustainable finance with a deep understanding of the challenges and initiatives in this evolving field. My expertise is demonstrated by my involvement in various projects and collaborations aimed at promoting sustainable financial practices.
Now, let's delve into the concepts mentioned in the article you provided:
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Sustainable Finance Challenges: Sustainable finance is experiencing significant growth but faces challenges. Key challenges include the lack of reliable data, international standards, and measurement methods to determine sustainability profiles. This leads to assumptions and potential double standards in assessing sustainability across institutions.
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Climate Ambitions and Targets: The article highlights the global commitment in the Paris Climate Agreement to limit global warming to 1.5°C. The EU aims for climate neutrality by 2050 and a 55% reduction in carbon (CO2) emissions by 2030. The Dutch government targets a 49% carbon reduction by 2030, emphasizing the need for increased efforts to achieve these goals.
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Obstacles to Climate Investment: A study by DNB identifies obstacles to climate investment, including poor return on investment due to underpriced CO2 emissions and uncertain government policies. Emission-intensive companies lack sufficient sustainability incentives when seeking funding.
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Stimulating Climate Investment: The article advocates for higher taxes on CO2, phasing out fossil subsidies, and implementing policies to drive climate investment. Suggestions include encouraging equity financing and financial innovation to align the supply and demand for innovative and risky climate investments.
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Principles for Responsible Investment (PRI): DNB was the first central bank to sign the Principles for Responsible Investment (PRI). This commitment involves applying the six investment principles of PRI, considering Environmental, Social, and Governance (ESG) criteria, and ensuring comprehensive accountability and reporting.
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International Standards and Data: Lack of internationally comparable data is identified as an obstacle to sustainable financing. DNB supports the IFRS Foundation's plans to establish a Sustainability Standards Board, emphasizing the importance of reliable and comparable sustainability information in annual reports.
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Cooperation and Initiatives: To address challenges and facilitate learning, DNB established the Sustainable Finance Platform in 2016, bringing together the Dutch financial sector, supervisors, and ministries. DNB is also part of the Network for Greening the Financial System (NGFS), aiming to strengthen the financial sector's efforts in achieving the Paris Climate Agreement targets.
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Towards a Green Economy: DNB is committed to promoting financial stability and sustainable prosperity in the face of climate change threats. The organization encourages financial institutions to incorporate the financial risks of climate change and actively invests in sustainable practices, even using sustainable cotton for new euro notes.
This comprehensive approach reflects DNB's dedication to navigating the complexities of sustainable finance and contributing to a more sustainable and resilient global economy.
